Two years after Hurricane Katrina hit the Louisiana coast, federal agencies continue to award lucrative contracts to large corporations rather than to small local businesses.

At an August 2007 U.S. Congressional hearing of the Small Business Committee of the U.S. House of Representatives, Congresswoman Nydia Velázquez, the committee chair, voiced her dissatisfaction with the federal government. "At this point, I would expect less lip service and more action," said the New York Democrat. "The testimony does not focus on specific and measurable ways to include these local small businesses in the rebuilding effort."(118)

According to federal procurement law, at least 23 percent of contracts granted by the U.S. government must benefit small businesses, whose definition varies by industry.(119) Contracts granted to small businesses are intended to create jobs, develop communities and ensure a competitive marketplace, all of which are considered important in an area recovering from a major disaster.

The committee staff's recent research finds that only 7.4 percent of Katrina contracts granted by FEMA from May to August have gone to small businesses, down from 12.5 percent in April. Similar patterns were observed for other major government agencies working in the Gulf Coast.

“We heard testimony from these six agency heads in April and each and every one promised to do more work with the local small firms,” Velázquez said. “Well here we are, four months later, and it is clear that these agencies still aren’t working with the Gulf Coast small businesses. Instead, they are actually taking money away from these entrepreneurs, or giving small businesses low dollar work, hindering the region’s ability to fully recover even more.”(120) (The other five agencies are the Army Corps of Engineers, Departments of Homeland Security, Defense and Veterans Affairs, and the Small Business Administration.)

For example, the Department of Homeland Security reported that 259 contracts worth $95 million earmarked for small business contracts actually went to large companies and other entities not meeting the definition of small business.(121)

In Katrina's wake, FEMA said that the reason that small businesses got few contracts (and for the surge in no-bid contracts) was to “get the job done quickly” and by the need to cut down on paperwork.

Two years later, the same excuses are drawing skepticism and anger. Velázquez castigated the agency officials who testified, saying: “These agencies need to understand that this is not about making it look like they are working with the local small businesses. It is about making the Gulf Coast small firms the centerpiece of this recovery.”